US citizens living in Hong Kong could save themselves huge sums of money if they exploit a significant tax savings opportunity before the end of this year.
US citizens are subject to a worldwide US estate and gift tax - a levy on assets they own, or wish to transfer ownership of to someone else, in excess of the permitted lifetime exemption amount. For the remainder of this year, that exemption amount has been set at US$5.12 million. However, this is scheduled to be reduced to US$1 million from January 1 and if the extra exemption is not used by the year's end, it will be lost.
In addition, the estate and gift tax rate is scheduled to increase from 35 per cent to 55 per cent.
This means US citizens living here who want to reduce their taxable estate through gift planning opportunities scheduled to expire at the end of this year should evaluate their options.
"A substantial number of Asia-based US citizens and green card holders will be heavily impacted by these scheduled changes … unless they act to implement gift planning with their lifetime exemption amounts," Erik Wallace, a partner in the Hong Kong office of the law firm Withers, said.
"While US expats will, of course, be affected, the changes apply equally to members of Asian families holding US citizenship and, in most instances, green cards."
Wallace said he believed that although many people living in the US knew about this tax break, not many living abroad knew much about it, and that the issue was not getting as much publicity overseas. He said the current low interest rate environment was ideal for obtaining additional savings opportunities for gift planning via trust structures. These trust structures could be used to "pass upside growth" on much more than US$5.12 million tax free to family members.
Many individuals who are considering giving up their US citizenship or green cards could also use the exemption to avoid "covered expatriate" status, effectively the relinquishment of citizenship.
"Planning now could save family members significant amounts of transfer taxes in the future," Wallace said.